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A legal row that threatened the existence of Skype has been settled, with the free net phone service's founders regaining a significant portion of the firm from eBay.

Niklas Zennström and Janus Friis will get 14 per cent of Skype and seats on its board under the deal, announced today.

In return the pair will make a "significant" cash investment and transfer ownership of the proprietory peer to peer software that powers the service to Skype. The had sued eBay for using the code - owned by Joltid Ltd, their holding company - without a licence.

in July eBay said in a regulatory filing the attack had prompted it to attempt developing replacement software but said it "may result in loss of functionality or customers even if successful".

As well as threatening Skype's continued operation, the case blocked eBay's attempts to spin off the company, which it bought from Zennström and Friis for $2.6bn in 2005.

As a result of today's settlement the online auction house will retain 30 per cent, and private equity firms 56 per cent. Once the sell off is complete, eBay will receive $1.9bn.

"Skype will be well positioned to move forward under new owners with ownership and control over its core technology," said John Donahoe, eBay's CEO.

"At the same time, eBay continues to retain a significant stake in Skype and will benefit from its continued growth. We look forward to closing the deal and focusing on growing our core e-commerce and payments businesses."

eBay has been looking to offload Skype after a $900m writedown in 2007 confirmed it massively overpaid.

Index Ventures, one of the private equity firms that had planned to buy Skype, pulled out as a result of the legal settlement.

"Although Skype has the potential to be a great investment, the deal terms changed for Index such that it no longer matches our investment criteria and thus we have decided not to participate in the transaction," said Index Ventures' Danny Rimer. ®